Watch for developments to determine how state courts and the state legislature respond to the ruling.
The U.S. Supreme Court has ruled that employers may compel employees to arbitrate individual claims raised under the California Private Attorneys General Act (PAGA).
In the case before the U.S. Supreme Court (Viking River Cruises, Inc. v. Moriana), Moriana – an employee of Viking River Cruises (Viking) – had signed an agreement to arbitrate any dispute arising out of her employment and waived her right to bring class-wide, representative or PAGA claims. PAGA enables employees to "stand in the shoes" of the state to recover penalties for Labor Code violations. If successful, 25 percent of the penalties are awarded to employees. PAGA claims are often brought as representative claims on behalf of other employees, which significantly increases exposure for employers.
After Moriana left Viking, she filed a PAGA claim alleging that Viking committed Labor Code violations affecting her and other employees. Viking moved to compel arbitration and, leading up to the U.S. Supreme Court's review, lower courts had ruled that:
- California law requires that the representative PAGA action waiver in the agreement be treated as invalid, and
- Since state law precludes division of PAGA actions into individual and non-individual (representative) claims, the employer was barred from forcing arbitration of the individual PAGA claims as well.
U.S. Supreme Court Ruling:
The U.S. Supreme Court disagreed with the lower courts in part and ruled that:
- The division of PAGA actions into individual and non-individual claims is permitted.
- Employers can compel arbitration of individual PAGA claims.
- Under PAGA, an individual can maintain non-individual PAGA claims only by virtue of also maintaining an individual claim in that action. Therefore, once an employer compels arbitration of an employee's individual PAGA claim, the non-individual claims should be dismissed.
If you have employees in California and use (or intend to use) arbitration agreements:
- Review the U.S. Supreme Court's decision with legal counsel to determine whether you should consider using arbitration agreements (or modify existing agreements).
- Watch for developments to determine how state courts and the state legislature respond to the ruling.
ADP Compliance Resources
ADP maintains a staff of dedicated professionals who carefully monitor federal and state legislative and regulatory measures affecting employment-related human resource, payroll, tax and benefits administration, and help ensure that ADP systems are updated as relevant laws evolve. For the latest on how federal and state tax law changes may impact your business, visit the ADP Eye on Washington Web page located at www.adp.com/regulatorynews.
ADP is committed to assisting businesses with increased compliance requirements resulting from rapidly evolving legislation. Our goal is to help minimize your administrative burden across the entire spectrum of employment-related payroll, tax, HR and benefits, so that you can focus on running your business. This information is provided as a courtesy to assist in your understanding of the impact of certain regulatory requirements and should not be construed as tax or legal advice. Such information is by nature subject to revision and may not be the most current information available. ADP encourages readers to consult with appropriate legal and/or tax advisors. Please be advised that calls to and from ADP may be monitored or recorded.
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Updated on June 29, 2022
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